…it is vitally important not just that conflict of interest be absent when big money is involved in policy decisions, but also that the appearance of conflict of interest be absent. Our system of money is based on confidence (after all it is a Ponzi scheme) and therefore it is vital that our checks and balances assure that the public good is not abused by a few at the expense of the many.
In order for the average person to pull hard on the yoke of life, straining to earn their daily wage, that wage has to be worth something. What is money “worth,” if some of us have to work to exhaustion to obtain it while a very small minority can literally conjure trillions out of thin air and distribute it amongst themselves?
Money is a social contract, especially fiat money, and abusing the trust inherent to making that money system work is the gravest of all possible errors. I am not exaggerating here.
This week I found out that, even as Lawrence Summers, in his role as President of Harvard University, was excoriating professor Cornell West for shirking his professorial duties by making a spoken-word audio CD, he was himself moonlighting for a hedge fund and various Wall Street banks earning millions. Here’s Frank Rich in the NYT:
Lawrence Summers, the president’s chief economic adviser, made $5.2 million in 2008 from a hedge fund, D. E. Shaw, for a one-day-a-week job. He also earned $2.7 million in speaking fees from the likes of Citigroup and Goldman Sachs.
Those institutions are not merely the beneficiaries of taxpayers’ bailouts since the crash. They also benefited during the boom from government favors: the Wall Street deregulation that both Summers and Robert Rubin, his mentor and predecessor as Treasury secretary, championed in the Clinton administration.
This goes well beyond “the appearance of” a conflict of interest. If Summers were a judge, he’d have to recuse himself from the case. Nearly $8 million in a few years from Wall Street is a conflict of interest. A massive one.
However, if smoking guns are more your thing, then this next bit of information from the same article will be to your liking:
Summers had done consulting work for another hedge fund, Taconic Capital Advisors, from 2004 to 2006, while still president of Harvard. He tried — and, mercifully, failed — to install the co-founder of Taconic in the job of running the TARP bailouts.
Think of the judgment of a person, long in the public eye, who has apparently learned nothing from his past scrapes with public perception, who attempts to install a past patron in a plum post involving public money being distributed to private, already wealthy recipients.
Think of the character of a person who can rationalize the act of publicly excoriating a professor for doing something that he is secretly doing himself, but on a much grander scale.
That person is Lawrence Summers, the man chosen by the Obama team to coordinate the bailout efforts.
Rahm Emanuel, the current White House Chief of Staff, comes similarly burdened:
…the banking industry recently paid Rahm Emanuel $16 million for about two years of work. That investment was recently paid back when, as President Obama's chief of staff, Emanuel led the January campaign to release another $350 billion in bank bailout funds.
But it goes deeper than that. Rahm Emanuel also took what I consider to be a lot of money serving on the board of Freddie Mac, a company that is certain to cost taxpayers hundreds of billions of dollars.
Before its portfolio of bad loans helped trigger the current housing crisis, mortgage giant Freddie Mac was the focus of a major accounting scandal that led to a management shake-up, huge fines and scalding condemnation of passive directors by a top federal regulator.
One of those allegedly asleep-at-the-switch board members was Chicago's Rahm Emanuel—now chief of staff to President Barack Obama—who made at least $320,000 for a 14-month stint at Freddie Mac that required little effort.
Before Timothy Geithner (“Turbo Tax Timmy,” as he’s called in some circles) was appointed to the Treasury position, his career and connections were explored in depth in an excellent article in Portfolio.com by Gary Weiss:
After the Bear deal, the Fed wound up with $30 billion in collateral, mostly in the form of subprime-mortgage securities. Even Paul Volcker, the former Fed chairman who served on the search committee that picked Geithner and who still holds him in high regard, has expressed queasiness about the way the deal was structured. In a speech to the Economic Club of New York, Volcker said the Fed took actions that “extend to the very edge of its lawful and implied powers, transcending certain long-embedded central-banking principles and practices.” Volcker later leavened this harsh assessment a bit, telling me that the Fed’s intervention “was a proper action, but it was extraordinary—something that’s never been done before, in terms of calling upon that emergency power. It tells you how seriously they took it.”
Still, misgivings about the deal are hard to ignore, no matter how catastrophic the consequences of not intervening might have been. It doesn’t help that the deal is teeming with connections that are sure to raise questions. Dimon is one of the three class-A directors of the board of the New York Fed, and its head is Stephen Friedman, a former Goldman Sachs chairman, who still sits on the investment bank’s board. The New York Fed’s board also includes Richard Fuld of Lehman Brothers, a firm that is another oft-rumored potential candidate for a bailout. Fuld is a class-B director, meaning that he is elected by member banks, astoundingly, to represent the public. (Friedman is also supposed to be looking out for you: He was “appointed by the board of governors to represent the public.”) Thus Geithner reports to a board that is composed of people who are not only under his purview but would also benefit from any potential bailouts. The structure of the New York Fed’s board bears more than a passing resemblance to that of the New York Stock Exchange in the bad old days, when member firms, regulated by the N.Y.S.E., were heavily represented on its board.
Even more intriguing is Geithner’s informal brain trust, loaded with Wall Street luminaries. Since coming to the Fed in November 2003—recruited by then-New York Fed chairman Pete Peterson, co-founder of the Blackstone Group—Geithner has learned the ways of the financial industry at the feet of some of its biggest legends. He was almost immediately taken under the wing of Gerald Corrigan, a gregarious former New York Fed chief who is now a managing director of Goldman Sachs. Corrigan describes his relationship with Geithner as close, and it has flourished since Geithner’s first days at the Fed. Another frequent adviser—“you don’t want those things to get too formal,” Corrigan notes—is also a preeminent banker, Merrill Lynch C.E.O. John Thain, a Goldman alumnus and former head of the N.Y.S.E. Over the years, Thain has often talked to Geithner—“sometimes I talk to him multiple times a day,”
Given this extensive set of interconnections, you might think that he’d be careful to project the right image when stepping into the Treasury role – but instead he saw fit to place a Goldman Sachs insider in the position as his top aide last January (before anybody was paying too much attention to all this insider self-dealing):
WASHINGTON — Treasury Secretary Timothy Geithner picked a former Goldman Sachs lobbyist as a top aide Tuesday, the same day he announced rules aimed at reducing the role of lobbyists in agency decisions.
Mark Patterson will serve as Geithner's chief of staff at Treasury, which oversees the government's $700 billion financial bailout program. Goldman Sachs received $10 billion of that money.
Just a few months later, in March, when questioned about the appearance of conflict of interest, Geithner bristled at the suggestion:
"I am just asking the questions," Waters said, "because the talk is…that this small group of decision makers at the center of it is Goldman Sachs and that's what's causing a lot of the distrust, because people are thinking or believing that Goldman Sachs, because of the connections, have had a lot to do with the decisions that are being made."
Geithner took umbrage.
"I think it's deeply unfair to the people who are part of these decisions to suggest that they were making judgments that in their view were not in the best interest of the American people," Geithner said.
Apparently Mr. Geithner found it completely confusing why anybody would see anything at all wrong with a regular revolving door between positions of extreme financial power over public money and the firms set to benefit from public money.
To me, that is a sure sign that someone is too deeply embedded, too deeply conflicted, too detached from reality to even know where to draw the line. Timothy apparently cannot distinguish between the “best interest of the American people” and Goldman Sachs raking in billions of undeserved public dollars. To him, those are one and the same thing and that's a major reason why I have grave doubts that the bailouts will succeed.
Now let’s cross into the surreal. One of the more grossly mismanaged companies on the face of the planet, the one that will cost taxpayers close to a trillion dollars when all is said and done, is Fannie Mae, the Government Sponsored Enterprise, or GSE. So who is it, do you suppose, that picked the CEO of Fannie Mae to run TARP? Could it be Summers and Geithner and Emanuel?
You bet. That’s the vetting team.
As far as I am concerned, the CEO of Fannie Mae should be defending himself in court, not running a massive wealth redistribution program.